PMS Newsletter – June'2017

Founded in 1997, Multi-Act is led by Prashant K Trivedi, 54, a CFA charter holder, who is also CIO of his family’s office. It employs over 50 people across 2 offices in Mumbai and Pune. The team comprises mainly CAs (the equivalent of CPAs in USA), statisticians and economists.

“I believe that the major problem hindering families from realizing their Financial Goals is the inherent clash between the structure of the financial services industry, the behavioural biases (of clients and agents), juxtaposed against the actions of Central Banks.”

Praxeology – The Multi-Act Equity Research Blog

Central Banks across the world have frequently used quantitative easing (QE) as a means to introduce greater liquidity into the economy. However, QE has raised the risk of moral hazard: investors will take greater risks, knowing that the potential costs will be borne, in whole or in part, by others. Moreover, QE has increased asset prices, which in turn has severely affected the ‘prospective return’ on all assets.

“The stock market is the story of cycles and of the human behavior that is responsible for overreactions in both directions.”

– Seth Klarman.

When Warren Buffett famously stated that investing was simple but not easy, he meant that the rules we ought to use in order to make good investment decisions are easy to learn but actually adhering to them is difficult. Disregarding rules while investing cannot be attributed to open rebellion but can be ascribed to the basic human survival instincts that have been ingrained in us since time immemorial. Certain traits favored in the process of Natural Selection and helped our ancestors survive in the jungle actually do not help in the market.Read More

It is the most devastating trick investors play on themselves. Realizing that the rise and fall of bubbles does not negate the effectiveness of diversified long-term investing is one of the most powerful understandings an investor can have. And one of the hardest things an investor can do is maintain conviction on a long-term strategy when there’s a changing of the guard between one game and the next.

But a lot of the emotions — excitement, greed, fear, and frustration — stem from not knowing what bubbles are or why they’re happening which is what Minsky’s financial instability hypothesis explores.

Now, almost all indicators of auto lending are flashing red. Negative equity has hit an all-time record. Why is negative equity such a growing phenomenon? Because of the toxic trifecta in the auto industry, now happening. Read on to delve deeper into the insanity of the United States’ auto lending segment.

Gold has been in use as a form of currency or a high value commodity for at least three millennia. Records show that India has had an intense relationship with this glittering metal for almost as long. The picture of an Indian bride is incomplete without her being weighted down by masses of gold jewellery and tales of palaces being inlaid with gold leaf abound.

Credit growth is a well-known factor behind bubbles and China’s credit growth in the recent past should be a definite concern. Shadow banking channels (which make traditional reporting obscure) is a further negative. History shows, in many cases, how it ends in the scenario of tightening or loss of confidence among participants walking a tightrope of duration mismatch.